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Market Review - 04/01/2011 21:21 GMT

Dollar rises on upbeat US economic data

The dollar recovered from 3-week low against euro on Tuesday as robust U.S. economic data suggested the U.S. economy was gaining strength and bolstered the greenback's appeal. US factory orders unexpectedly rose by 0.7% in November versus the forecast of decrease of 0.1%. Durable goods excluding transportation also recorded their largest gain in eight months and came in at 3.6%.

The greenback rose sharply against the Japanese yen from Tokyo low of 81.61 to 82.28 in early European trading on heavy unwinding of recent long yen positions. Although the pair stage a pullback to around 81.68 in NY session, the pair rebounded and edged up in late NY trade.

In other news, FOMC meeting minutes showed Fed officials still expected gradual pickup in economic growth and slow job gains. While outlook was seen improving, it was not enough to warrant adjustments to $ 600 billion bond buying program. FOMC participants also anticipated inflation would remain below levels consistent with mandate for some time. Prices of some commodities and goods have risen but businesses mostly were unable to pass such increases on to customers. Fed staff revised up near term GDP increase but medium term outlook was little changed.

The single currency weakened to 1.3324 ahead of European opening on talk of euro-selling in related to German and Austrian bond redemptions/coupon, however, euro staged an intra-day rally to a 3-week high 1.3435 on buying by Asian central banks. The single currency later retreated sharply from there and tumbled to 1.3292 in NY session after the release of a series of upbeat U.S. economic indicators.

On economic front, German unemployment in December unexpectedly rose for the 1st time since June 09' (actual unemployment change was +3k vs forecast of -15k) as the coldest weather in more than 40 years led companies to lay off staff.

Despite sideways movement in Asia, the British pound jumped in London trading on early buying by Asian central bank near 1.5480/90, such action triggered intra-day short-covering and sent cable sharply higher and the release of stronger-than-expected U.K. Dec Manufacturing PMI (actual 58.3 vs forecast of 57.0), the highest index in 16 years, pushed the pound to as high as 1.5646 before easing.

Economic indicators to be released on Wednesday include:

Germany Services PMI, EU Service PMI and PPI and Industrial orders, U.K. Construction PMI, U.S. ADP employment and ISM Non-manufacturing.

Market would focus on Portugal's sales of 6-month Treasury bills on Wednesday.

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